a subsidy are: Subsidy to producers Subsidy to consumers Subsidy to producers of inputs Providing Incentives Instead of Subsidising Production/sales through public enterprises Cross subsidisation Subsidy targeting Subsidies can be distributed among individuals according to a set of selected criteria, e.g. 1) merit, 2) income-level, 3)social group etc. two types of errors arise if proper targeting is not done, i.e. exclusion errors and inclusion errors. In the former case, some of those who deserve to receive a subsidy are excluded, and in the latter case, some of those who do not deserve to receive subsidy get included in the subsidy programme. Effects of subsidies Economic effects of subsidies can be broadly grouped into Allocative effects: these relate to the sectoral allocation of resources. Subsidies help draw more resources towards the subsidised sector Redistributive effects: these generally depend upon the elasticities of demands of the relevant groups for the subsidised good as well as the elasticity of supply of the same good and the mode of administering the subsidy. Fiscal effects: subsidies have obvious fiscal effects since a large part of subsidies emanate from the budget. They directly increase fiscal deficits. Subsidies may also indirectly affect the budget adversely by drawing resources away from tax-yielding sectors towards sectors that may have a low tax-revenue potential. Trade effects: a regulated price, which is substantially lower than the market clearing price, may reduce domestic supply and lead to an increase in imports. On the other hand, subsidies to domestic producers may enable them to offer internationally competitive prices, reducing imports or raising exports. Subsidies may also lead to perverse or unintended economic effects. They would result in inefficient resource allocation if imposed on a competitive market or where market imperfections do not justify a subsidy, by diverting economic resources away from areas where their marginal productivity would be higher. Generalised subsidies waste resources; further, they may have perverse distributional effects endowing greater benefits on the better off people. For example, a price control may lead to lower production and shortages and thus generate black markets resulting in profits to operators in such markets and economic rents to privileged people who have access to the distribution of the good concerned at the controlled price. Subsidies have a tendency to self-perpetuate. They create vested interests and acquire political hues. In addition, it is difficult to control the incidence of a subsidy since their effects are